Anti-corruption initiatives are key to capital markets efficiency

As the UK defence industry is faced with the prospect of further investigations into its old deals, the latest reo Report from F&C has stated that the debate has highlighted the need for industry-wide anti-corruption initiatives. reo, Responsible Engagement Overlay, is a service for institutional clients which uses shareholder engagement to enhance business performance of investee companies by improving their corporate governance, social and environmental practices.

"Allegations and subsequent investigations related to corruption can severely disrupt relations between companies and their customers, causing project delays and significant reputational damage" , said Karina Litvack, Head of Governance and Sustainable Investment at F&C. "Many companies in the sector are also faced with so-called legacy issues – or skeletons in the closet" , continued Litvack. "Legacy issues are most likely to affect companies that have used sales and business techniques until very recently which would be illegal today – even though they were legal – or in a legal grey area – at that time. It is by no means clear how companies should deal with such issues, but when they come to light, they can be very damaging to a company's reputation."

In December last year, F&C wrote to Lord Drayson, the British Minister for Defence Procurement, emphasising the impact of such issues on the efficiency of capital markets and recommending that the government should "give full and visible support to [anti-corruption] initiatives at UK, European and global levels." "Indeed" , said the letter, "to achieve a level playing field in which UK companies are not disadvantaged commercially by agreeing to rigorous anti-corruption procedures, such initiatives must be pursued at an international level. We look to the Government to increase its efforts in this regard."